Credit crisis will carry on crunching

Some say the credit crisis is over. Not Tom Attwood, managing director of Intermediate Capital Group (ICG), a firm which makes few waves outside financial circles. Its business is mezzanine finance, specialist high-risk lending to private equity firms. That puts it at the frontline of the financial turmoil and Attwood's bleak assessment of conditions yesterday is worth quoting.

Sub-prime, he says, was merely a catalyst to the bursting of the credit bubble. It was going to happen anyway. "Credit disciplines across almost all markets were bypassed in favour of loan book growth at almost any cost."

So far, so uncontroversial, and Attwood has been singing a similar tune for a while. The key point is that he can't spot the break in the clouds that many bankers claim to see. "What was a liquidity crisis is likely to lead to a credit crisis," he says. "Buy-outs structured in the benign credit climate prior to August 2007 were often over-geared with no margin for safety. This is likely to lead to an increase in default rates over the next year or two."

A year or two? Well, yes. ICG assumes there will be a recession in the US, the UK, Spain - the markets most pumped up with credit - and a slowdown elsewhere.

His bottom line is: "There is no sign of a return to liquidity in debt markets as a whole. Raising new funds will become increasingly difficult across the board."

Attwood thinks the conditions bring opportunities for ICG, which has raised £175m via a rights issue and has a £500m borrowing facility. Volatile markets are often inefficient markets, he argues, and well-capitalised firms can scoop up bargains. Investors seem to agree: ICG's shares surged 10% yesterday.

But the implication is that an awful lot of duff loans are still to surface. Attwood's killer fact is that in 1999 ICG was one of three funds in Europe in the mezzanine and leveraged loan business; by 2007, there were 112. Some of the inexperienced losers are known already, but there's surely more pain to be revealed.

Angry phone calls

Here's a takeover scrap that could become very lively. The thing to know about Thus, the telecoms company with a silly name, and Cable & Wireless, the once-great firm with an historic name, is that the managements hate each other.

Bill Allan at Thus was a 25-year veteran of C&W who thinks he knows how his old shop should be run. He also tried to upstage C&W's takeover of Energis in 2005. Thus's eleventh-hour tilt at a company four times its size was laughably heroic; it died on day one. In the C&W corner, John Pluthero has met the jibes with lofty contempt. And now he's made a bid approach to Thus.

In normal circumstances, you wouldn't fancy Thus's position. In nine years since flotation, it hasn't made a pre-tax profit and hasn't paid a dividend. It is remembered for climbing into the FTSE 100 in 2000 at the height of the dotcom madness. But even now it is worth less than a tenth of its bubble valuation. Many managements might settle for a cash bid at this point.

Allan, you suspect, is different. But he would also have good reason not to surrender meekly at 150p, the rumoured offer price.

Thus was trading at 200p a year ago, and it has options. The so-called alternative carriers industry, which provides hosted services to business customers, is on the brink of major restructuring.

Simply put, there are too many providers - Colt, KCom and others - and the time has come to rip out costs. C&W is the obvious consolidator, but others may like the role. Big European or US telecoms groups would be obvious white knights for Thus. Let's hope the battle goes the distance. Too many takeovers these days end tamely without any honest cut and thrust. This one might just be different.

No fear of flying

This is what investors like to see: a chief executive who can't stop buying his own shares. EasyJet's Andy Harrison invested £500,000 this week at 265p. That's after £250,000 at 345p in March and another quarter-million's worth at 424p in January.

Harrison is probably not short of a few bob (he was the boss at the RAC when it was bought by Aviva), but £1m out of his own pocket is a serious punt. EasyJet's shares had the decency to perk up yesterday, climbing to 292p as the price of oil fell.

The airline's profits are still tied to the oil price but easyJet is clearly a survivor in the industry shakeout that looks inevitable. Investing in airlines has always been about catching the turn in the cycle. Harrison was too early with his first two plunges. He may be premature again, but you suspect his bravery will be rewarded eventually.nils.pratley@theguardian.com